Welcome to Yield Report

Interest rate commentary for 15 Aug – 19 Aug 2016

Unlike international markets, Australian government bond yields traded lower this week with modest downward moves on 3, 10 and 20 year bonds. There were some economic data reports that could have affected markets but in the end they had marginal impact. Wages surprised to the upside and the unemployment figures were slightly stronger than expected yet yields still fell.

Close Week
Cash Rate%   1.50
90d Bank Bill%   1.74    -0.01      1.76      1.74
Aust 3y Bond%*   1.36    -0.03      1.40      1.35
Aust 10y Bond%*   1.87    -0.05      1.93      1.86
Aust 20y  Bond%*   2.41    -0.05      2.46      2.41
US 2y Bond%   0.75     0.06      0.75      0.71
US 10y Bond%   1.58     0.07      1.58      1.54
US 30y Bond%   2.29     0.06      2.30      2.26
iTraxx 101.0    -1.90    100.5     103.5
$1AUD/US¢ 76.26    -0.25    77.49    75.99
* Implied yields from Sept 2016 futures

The RBA minutes of the August board meeting were also released leaving markets in two minds as to further rate cut timing. Markets are pricing another 25bps cut by June 2017 but a number of economists still believe a rate cut will be forthcoming this year.

Semi-government bonds are normally relatively quiet but this week there was a lot of activity with two states issuing bonds and a distinct investor appetite to move from AAA rated semis to non-AAA rated semis. The South Australian Financing Authority issued $1 billion of a new 2022 bond that was snapped up by eager investors and, in a move not often seen, the RBA also bought $100 million of semi government bonds for ‘liquidity’ purposes. It bought the bonds across multiple lines. In further semi-government news one of the states had its credit rating downgraded.

In the cash market the RBA minutes had little effect on the near month contracts but expectations for a rate cut beyond July 2017 increased in certainty.

Term deposits this week saw very little change with most banks amending their rates after the RBA’s interest rate cut on 2 August.

Around this time of the month we have all the data for the performances of the various bond and cash managed funds and the latest tables show all the performances for the month of July. There were some good performances and, in particular, the 12 month returns are showing healthy numbers.

We hope you enjoy reading this week’s YieldReport.

July 2016 monthly interest rate commentary

July was another good month for bond returns with bond rates falling across the yield curve. Germany issued its first 10 year bond at a negative yield and every bond in Switzerland was trading at a negative yield! Australia’s federal election came and went without much impact on markets with the Liberal/National coalition returned to power with a 1 seat majority. Apart from a wafer-thin majority, the Australian Government will have to contend with a newly acquired negative rating outlook, although its AAA status is intact for now.

A number of UK property trusts were frozen and Turkey experienced a military coup that was put down within hours. Sadly, there were more terrorist attacks in France…..Click here to read more

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